Fake online product reviews are misleading consumers and in some cases breaching consumer protection laws. Here, we take a look at the regulations being introduced and the obligations on online businesses.Since the pandemic, online shopping has soared, and many consumers trust online reviews as much as recommendations from family and friends. Some sites even adjust price tags based on the product's review status. However, in a competitive digital market in which consumer reviews can make or break a product or even a company, the continuing presence of fake reviews has attracted the attention of regulators across Europe and beyond.
One year ago, official figures based on the self-reporting by the world's leading e-commerce sites have led the World Economic Forum to conclude that 4% of all online reviews are fake and that the direct influence of misleading reviews on global spending is $152 billion. Investigations have shown that an extra star on a restaurant's Yelp rating can increase revenue by 5% to 9% and, in some cases, a $250,000 outlay on fake reviews can generate more than $5 million in sales. National watchdogs have already begun investigations into a number of major players in the digital space.
In the coming months, companies trading across different regulatory regimes are likely to face many challenges when carrying out their operations.
Here, we summarise the regulatory landscape in relation to fake consumer reviews and provide a guide to navigate the ever-evolving framework in some of the major jurisdictions in the EU and beyond. We also share our thoughts on what is next and some tips for businesses falling in scope.
The EU DirectiveOn 28 May 2022, the Better Enforcement and Modernisation Directive (Directive (EU) 2019/2161) (the "Directive") came into force. The Directive clarified the position on misleading reviews by explicitly stating that selling, buying and submitting fake consumer reviews in order to promote products is prohibited. More information can be found here.
EU Member States have so far sought to transpose the Directive in a number of different ways, while the UK is preparing to introduce its own regime specifically to tackle the issue of fake reviews.
The United Kingdom
The presence of fake consumer reviews is an issue that has caught the attention of the UK's Competition and Markets Authority (the "CMA"). In May 2020, the CMA launched an initial investigation looking into suspicious reviews where, for example, a single user has reviewed an unlikely range of products or services, or where the reviewer has received incentives to review.
Then, in April 2022 the UK Government announced reforms to protect the public from misleading reviews in marketplaces. In particular, new legislation that is subject to consultation will seek to prevent traders and marketplaces:
- Commissioning users to submit fake reviews;
- Hosting consumer reviews without taking reasonable steps to check their authenticity; and
- Offering or advertising to submit, commission or facilitate fake reviews.
The government is also set to give the CMA enhanced powers to award compensation to consumers and directly enforce consumer law generally by imposing financial penalties for:
- Breaching consumer protection laws, with penalties worth up to 10% of global annual turnover for businesses or up to £300,000 in the case of an individual;
- Breaching undertakings given to the CMA, with penalties worth up to 5% of a business’ annual global turnover or up to £150,000 for an individual, and additional daily penalties for continued non-compliance; or
- Non-compliance with an information notice, concealing evidence or providing false information, with penalties worth up to 1% of a business’s annual global turnover or up to £30,000 for an individual, and additional daily penalties for continued non-compliance.
While the government is seeking further evidence on how best to regulate around the issue of fake reviews, the reforms underline the UK's commitment to adapt to market trends, as well as the need for those businesses falling within the scope of new or existing laws to implement the steps necessary to ensure compliance.
Prior to the rollout of the Directive, France had already taken the matter into its own hands by introducing stricter regulations against misleading sales tactics used by e-commerce sites. Adopted in 2016, the French Digital Republic Act created Article L111-7-2 of the Consumer Code (the "Code"). This prohibits fake consumer reviews and imposes new obligations on digital marketplaces to verify that those leaving reviews have actually bought the item or service in question.
The French Digital Republic Act sets out clear disclosure obligations for all entities "whose activity consists, principally or incidentally, of collecting, moderating or disseminating online opinions from consumers" to provide "fair, clear and transparent information on the procedures for publishing and processing reviews posted online". Thus, under Article L.111-7-2 of the Code, companies must:
- Expressly state whether the reviews are monitored and, if so, clearly specify the main procedures used for monitoring;
- Display the date of the review and any subsequent update;
- Inform the consumer whose online reviews have not been published why these were rejected; and
- Provide, free of charge, the necessary functionalities to allow companies whose products or services are the subject of online reviews to report any doubts they may have on the reviews' authenticity.
Article L.131-4 of the Code states that any failure to comply with the above shall be punishable by an administrative fine of up to €375,000.
Additionally, Article L.121-3 and 121-4 of the Code prohibits misleading commercial practices and defines a commercial practice to be misleading if, taking into account the means of communication used and the circumstances surrounding it, the practice:
- Omits, conceals or provides unintelligible, ambiguous or untimely material information;
- Fails to indicate its true commercial intent where this is not already apparent from the context;
- States that reviews of a product are disseminated by consumers who used or purchased the product, without having taken the necessary steps to verify it; or
- Disseminates fake consumer reviews in order to promote products.
Therefore, fake online reviews may fall within the definition of "misleading commercial practices" under Article L.132-2 of the Code and be criminally sanctioned by a two-year prison sentence and a penalty of up to €1.5million. The penalty can also amount to 10% of the annual turnover of the undertaking or 50% of the expenses used to commit the offence. Supplementary penalties may also include bans on exercising a commercial or industrial profession, directing, administering, managing or controlling in any capacity, directly or indirectly, a commercial or industrial enterprise or a commercial company, for a period of up to five years. In the event of a conviction, the court may also order the publication or dissemination of the decision.
In line with the Directive, the Bundestag, the German legislative body, has introduced new obligations applying to any consumer-facing company. The new provisions will come into force under the Unfair Competition Act (the "UWG") and cover issues in connection with digitalisation. The reform is a real paradigm shift in German competition law, which has so far relied heavily on the self-regulation of the markets.
Under Section 5(b)(3) of the UWG, traders must now take reasonable and proportionate steps to ensure that the reviews on their site are genuine and, where traders fail to do so, they must indicate to consumers that the authenticity of the reviews is not verified. If a consumer review is used in advertising the product or service, traders must:
- Provide consumers with information on the processes implemented to collect consumer reviews;
- Verify the authenticity of the reviews; and
- Provide information that explains whether reviews available on the marketplace are influenced by a contractual relationship.
Section 3(3) of the UWG, the so-called "black list" of prohibited practices, now also includes the guarantee of genuine and accurate customer reviews, making it unlawful to mislead consumers about the authenticity of consumer reviews or to use falsified consumer reviews for the purpose of sales promotion. It is also unlawful to commission fake consumer reviews or recommendations and to misrepresent consumer reviews or recommendations on social media for the purpose of sales promotion.
Non-compliance may give rise to an unfair commercial practice, entitling competitors and consumer protection agencies to seek remedies. Consumers may claim damages for unlawful business acts committed by an entrepreneur intentionally or negligently. Similar to the GDPR, the implementation of the Directive can give rise to fines of up to 4% of the trader's annual national turnover. However, this only applies in presence of a turnover greater than €1.25 million recorded in the preceding business year and in the member state affected by the action.
In 2019, the Organisation of Consumers and Users (the "OCU") identified the existence of companies that offered free commission on their products in exchange for a positive evaluation. After analysing more than 6 million opinions on 47,000 products and services, the OCU detected that almost 20% of reviews could be fake.
With the advent of the Directive, the Spanish legal system promptly implemented the new framework through the Royal Decree-law 24/2021 and the section referring to the amendments introduced into the Spanish Consumers Act (the "SCA") and the Spanish Unfair Competition Act (the "SUCA") came into force on 28 May 2022. Under the amended framework, companies must:
- Indicate whether the reviews that accompany their goods and services are from people who have actually used or acquired the goods and services; and
- Present clear and detailed information on the way in which such reviews are processed.
Article 20(4) of the SCA now provides that all commercial practices in which a trader provides access to consumers' reviews of goods and services must contain information on whether or not the trader guarantees that the published reviews have been made by consumers who have actually used or purchased the good or service. It is worth noting that this new regulatory framework does not oblige traders to verify the origin of all reviews, but, under Article 27, requires online traders to take reasonable and proportionate measures to verify their reviews and explain to consumers what mechanisms are used to verify their authenticity.
In addition to compensatory actions, consumers are now also entitled to bring a case before the civil courts under Article 32 of the SUCA against traders. Furthermore, and according to Article 47(m) of the SCA, unfair commercial practices against consumers are to be considered minor infringements, capable of being sanctioned with fines from €150 to €10,000. However, they may be qualified as serious or very serious infringements in cases of aggravating circumstances according to Article 48(3), in which case penalties can amount to up to €1,000,000.
The United StatesUnder the Federal Trade Commission Act 1914 (the "FTCA"), the Federal Trade Commission (the "FTC") has enforcement authority that it can utilise to combat fake reviews. Section 5(a) of the FTCA prohibits unfair or deceptive acts or practices in or affecting commerce if the dissemination of any false advertisement affects, or is likely to affect, the purchase of good or services. In 2019, the FTC announced its first case challenging a marketer's use of fake paid reviews on an independent retail website. The proposed court order settling the FTC's action imposed on the defendant a suspended $13million fine. More recently, the FTC entered into a settlement with an online platform alleged to have posted fake positive reviews and testimonials on third-party review platforms, written by the company's employees or their family, friends, and other associates.
Similar to the FTCA, the US framework also provides for numerous sector-specific obligations. For example, and not limited to, the Consumer Financial Protection Act of 2010. The Consumer Financial Protection Bureau (the "CFPB") has not yet formulated any rules defining unfair, deceptive, or abusive act or practice, but the contours have begun to come into focus through CFPB enforcement actions. In addition, defamation law and claims for libel may apply to online content as they do with any other form of written publication, depending on the state in which a claim is filed, or trigger a private right of action under federal law.
With such a fragmented framework, businesses trading in the US and in Europe may need to review their practices and, if necessary, update their policies in line with any commonalities presented by the jurisdictions in which they operate.
ChinaChina's State Administration for Market Regulation (the "SAMR") is showing the country's online businesses just how serious it is about regulating market behaviour on fake reviews. In the last year, China's watchdog investigated more than 3,000 cases of fake reviews and inflated sales, imposing fines totalling US$31.8 million.
The SAMR's latest crackdown comes amid efforts by authorities to use almost every regulatory tool at their disposal to bring the national tech sector to heel after years of virtually unchecked growth. The SAMR has already investigated many major players in the digital world and is ready to enforce their powers on marketplaces if there is evidence of unfair competitive behaviour.
While the Consumer Protection Act 2019 (the "CPA") states that the consumers have a right to be “informed about the quality, quantity, potency, purity, standard and price of goods, products or services”, the Indian government is planning to deliver a standard operating procedure (the "SOP") to protect online consumers from fake reviews. Following a lengthy consultation with entities in the e-commerce space, the Indian government has identified that many norms currently in place across the marketplaces are designed to protect the sale of the products rather than being oriented towards the protection of consumers.
In June 2022, the Central Consumer Protection Authority (the "CCPA"), established under the provisions of the CPA two years prior, issued the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements (the "Guidelines"). These provide for:
- Conditions for an advertisement to be non-misleading and valid;
- Certain stipulations in respect of bait advertisements and free claim advertisements; and
- Prohibition of surrogate advertisements.
The threat of misleading reviews has also attracted the attention of the Advertising Standards Council of India (the "ASCI") and the Ministry of Consumer Affairs, Food and Public Distribution (the "DoCA"), which held focus meetings with stakeholders and e-commerce giants like Flipkart and Amazon to identify and assess the impact of unverified reviews on consumer behaviour. The DoCA has since taken the lead in developing a framework addressing the growing concern of fake reviews which will expand on the existing Guidelines.
In the meantime, the Federation of Hotel & Restaurant Associations of India has joined the bandwagon and pushed for a permanent regulatory watchdog to monitor fake reviews and provide for sharing the identity of reviewers with business owners.
In the coming months, while waiting to finalise the SOP, the Indian government will likely step up its scrutiny of the continuing presence of fake and misleading reviews and increase its enforcement actions to battle any violation of consumer rights under the CPA.
In Australia, businesses and review platforms that do not remove reviews that they know to be fake risk breaching the Competition and Consumer Act 2010 (the "CCA"). The CCA requires businesses to monitor online reviews and take steps to ensure that such reviews genuinely represent the opinions of those posting them and prevent consumers from being misled. The CCA also stipulates that reviews may mislead consumers if they are presented as impartial, but were written by:
- The reviewed business;
- A competitor;
- Someone paid to write the review who has not used the product; or
- Someone who has used the product but written an inflated review to receive a financial or non-financial benefit.
While the CCA applies to conduct in Australia as well as conduct outside Australia by corporations carrying on business in Australia, the Australian Competition and Consumer Commission (the "ACCC") can take a range of enforcement actions for misleading and anti-competitive conduct.The ACCC can impose fines on businesses if these do not remove fake or misleading reviews whose aim is to promote the product or damage competitors." should be amended to read: "The ACCC can impose fines on businesses which do not remove fake or misleading reviews, if such reviews aim to promote a product or damage the reputation of competitors.
The topic of online reviews has attracted regulatory scrutiny and on many occasions become the driver for initiating regulatory investigations. The pressure on businesses to ensure compliance is quickly growing, and marketplaces and traders must familiarise themselves with the regulatory regime to avoid potentially expensive consequences.
In the coming months, enforcement actions are likely to arise from national authorities but also from competitors as well as consumer protection agencies. The potential costs of enforcement by regulators, litigation by competitors, as well as reputational damage should not be underestimated, and underline the need for businesses to maintain protocols to identify, address, and mitigate their impact.
Businesses dealing with online reviews and falling within the scope of applicable regimes should consider implementing and maintaining policies and procedures designed to identify fake reviews and outline potential responses to mitigate their impact. Companies might also consider designating a specific individual to oversee such policies and procedures and assess whether to address them publicly in order to better control any ensuing negative publicity.
As online sites and marketplaces operating in the UK and in the EU can expect to face increased scrutiny from enforcement authorities, the team at Fieldfisher can assist in:
- Reviewing and updating the information available to consumers on the site, to ensure transparency on how product reviews are obtained;
- Auditing internal processes and technical measures in relation to the verification of consumer reviews to ensure that reviews remain genuine; and
- Amending internal policies to guarantee that incentivised reviews and the submitting of, or the commissioning of others to submit, fake reviews or endorsements is strictly prohibited.
For more information, please contact Andrea Carrera, Jonathan Peters, Lauren Mechri or Priyanka Kapoor.
Sign up to our email digest